Quest for increased productivity continues amid strong structural change, BRC-Bond Dickinson Retail Employment Monitor shows

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The quest for increased productivity continues amid strong structural change, according to the BRC-Bond Dickinson Retail Employment Monitor for Q2 2015.

Second Quarter 2015: April – June

% change on a year ago

    Monthly

% change on a year ago

Employment: full-time equivalent Number of stores Employment: full-time equivalent Number of stores
0.0% 1.9% April -0.2% 2.1%
May 0.1% 1.9%
  June 0.0% 1.6%

Summary

  • The equivalent number of full-time jobs was unchanged in the second quarter of 2015 compared with the same quarter a year earlier
  • In the second quarter of 2015, the number of stores rose by 1.9%. Both food and non-food retailers contributed to the overall increase
  • On a three month rolling basis, food retailers have cut back on the number of hours worked for the 19th consecutive period. Store growth for food retailers fell to 1.7% – the weakest growth since the inception of the Monitor

The BRC-Bond Dickinson Retail Employment Monitor (REM) indicates that 17% of retailers in our sample intend to increase staffing levels in the next three months compared with 20% this time last year.

83% of retailers in our sample intend to keep staffing levels the same in the next three months compared with 76% at the same time last year. No retailers suggested that they were intending to decrease staffing levels.

BRC director general, Helen Dickinson, said: “Today’s figures give us some real insight into the impact of the structural changes happening in retailing right now.

“The increase in store numbers is driven almost entirely by food retailers opening more small-format convenience stores to cater to changing shopping habits while the spike in redundancies is clear evidence of retailers ensuring their operations are as lean and efficient as possible in order to remain competitive in a fiercely contested market.

“Its good news that no retailers in our sample are intending to decrease staffing levels over the next three months but as they work hard to ensure their offer meets consumer demand they’ll be looking to increase the productivity of their workforce too. As pay begins to increase across the economy (partly as a result of the Government’s new National Living Wage) retailers will need to look at how they can absorb attendant increased costs while becoming more productive and remaining competitive. This is the key challenge facing British retailers.

“While both the economy and consumer confidence are in good shape to support retailers on this journey, it is incumbent on Government to make sure that it works with the industry to remove any unnecessary burdens (such as the continuing anachronism of the Business Rates system) which might hold our industry back.”

Christina Tolvas-Vincent, head of retail rmployment at business law firm Bond Dickinson, said: “Investment in more people in the retail sector is lagging behind investment in new stores as the march towards a greater proportion of smaller convenience stores continues. Increasing numbers of employees in non-food retail companies shows confidence in this part of the sector though many grocers are finding the market more of a challenge.

“As the UK’s largest private sector employer, the retail industry has a pivotal role to play in the economic health of the country but there are more challenges coming its way. Apart from the introduction of the National Living Wage, the Government’s plans for all employers over a certain size to publish the gender pay gaps within their organisation would impact many retailers. This could be both incredibly time consuming and expensive to produce under the current proposals.”

Labour market overview

The overall UK labour market stuttered a little in the three months to May. The unemployment rate rose marginally to 5.6% from 5.5% in the previous period.  The UK workforce fell for the first time for two years with 67,000 fewer people working in the three months to May than in the previous period.  The claimant count also rose by 7,000 in June – the first rise since 2012.

However, annual growth in employment was still 0.9% higher and the claimant count was 240,000 lower – so a softening of the numbers shouldn’t be greeted with too much panic. In fact, with GDP and in particular, consumer spending, strengthening, the signs are that productivity will begin to pick up.

The performance of the retail labour market continued to lag behind that of the overall economy – with year-on-year growth of full-time equivalent (FTE) employees in our sample showing no sign of growth. Structural changes occurring throughout the industry continue to pull in different directions.

Food

Hours worked across our sample of food retailers fell for the nineteenth consecutive period in the three months to June.  The net increase in the number of stores during the same period (+1.7%) is indicative of the continued expansion into the convenience market. In fact, the average number of FTE employees per store has fallen for almost three consecutive years – likely to be a mixture of smaller average stores and fewer employees per square foot. The mix of hours worked by full-time and part-time employees remains balanced, although the growth in hours worked by PT contracted employees was marginally exceeded by the fall in FT hours in the last quarter.

Non-Food

Non-food retailers in our sample continued to deliver growth in FTE employees in the three months to June, the eleventh consecutive period. It suggests that non-food retailers are becoming increasingly confident about the outlook for their businesses.  In many cases, underlying demand continues to strengthen with a backdrop of rising real wages, better job security, low inflation and rising consumer confidence.  As a result, confidence across the non-food sector appears to be rising as retailers are becoming increasingly willing to invest in people and, in some cases, property.

However, the rise in the number of stores in our non-food sample was marginal in the three months to June, increasing just 0.4%.

Overall retail employment

In the second quarter of 2015, the equivalent number of full-time workers was static year-on-year.

 

On a monthly basis, April showed a slight fall in FTE retail employees (-0.2%) which was cancelled out by a marginal rise in May and June.

The general decline in FTE employees in the sample over the last 12 months has coincided with a pick-up in retail sales, according to the BRC-KMPG Retail Sales Monitor – suggesting productivity has picked-up in recent months.   Although the decline in hours worked has eased recently, the pickup in sales implies productivity is likely to be heading in the right direction.

While there are other major factors to consider, such as the impact of online and the increased competition from the discounters reducing market share of the Big Four (Tesco, Asda, Morrison’s and Sainsbury’s), it’s indicative of the challenges facing the industry.

Business models that worked effectively just 5-10 years ago are now no longer operating as efficiently – the economics of retail is changing. Digital and e-commerce has changed consumer behaviour which has resulted in changing store dynamics, sales densities, labour productivity and distribution.

 

Retail store numbers

There was a net rise in the number of stores recorded in our sample in the second quarter of 2015 – c.300 additional stores.

Overall growth in the number of stores continues to be driven by expansion in the food sector. Growth is primarily being driven by food retailers expanding their convenience proposition.

However, the number of non-food stores rose marginally, suggesting that confidence across some non-food retailers is increasing.

 

Redundancies

The Monitor showed a sharp rise in the number of redundancies in the second quarter of 2015.